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Efficacy of robo-advisors during volatile markets

Jon Stein the Betterment CEO joins the Yahoo Finance panel to discuss the rise of robo-advisors amid Covid-19.

Video Transcript

AKIKO FUJITA: Robo advisory platforms have seen significant growth over the last several years, with 8% of US households invested in some of those platforms. But will the economic downturn and the volatility brought on by this pandemic lead investors to seek out human advice? Let's bring in Jon Stein. He is the CEO of Betterment.

Jon, good to have you on today. Let's talk about the kind of activity that you have seen in Betterment over the last six months. We have had a number of guests who have come on who said, look, now is the time to be a lot more active in your portfolio and seek out direct advice because of all the uncertainty in the markets. What do you say to that?

JON STEIN: Well, thanks, Akiko, it's great to be here with you. And I've heard some of that too. Our view at Betterment is always, have a smart financial plan, stick to it, stay the course. We, of course, want to acknowledge volatility as it's happening. And frankly, our systems at Betterment are built for volatile times like these. A lot of the things that we built back when I founded the company back in 2008 in that financial crisis, things like tax loss harvesting and automated rebalancing, really come to life in times of volatility, and provide the most value for our customers in times like these.

So back in March when volatility was at its highest, we traded $8.4 billion notional of rebalancing and tax laws harvesting transactions. All of that benefited our customers when stocks rebounded, when they banked losses that they could use to offset future gains. And so we've done a lot for our customers in this time. And in fact, I feel like we're built for volatile times like this.

BRIAN CHEUNG: Hey, Jon, it's Brian Cheung here. What caught my attention just now, is that you guys were founded in the midst of that last financial crisis. Here we are in another one. I want to ask about customer base. Have you seen larger interest not just in the types of services that you provide, but specifically in your platform, have you onboarded new people that we're not aware of Betterment before perhaps this COVID-19 crisis? And specifically, what are they using your platform for right now, given the unique nature of this pandemic that we find ourselves in?

JON STEIN: I like to remind people that Betterment has three lines of business. Our core, or the one that we're most known for, is our direct to retail business, where we act like a great financial advisor for our customers. Just smarter, faster, cheaper, better than most financial advisors. We help you make a plan, and customers come to us and we execute that plan for you. Investing for your goals appropriately.

We also have a line of business that supports human and financial advisors. Betterment for Advisors has been growing like crazy, especially in this time, as people have been looking for more advice. And our 401(k) platform, Betterment for Business, has also seen record traction, record new sign-ups. Interesting that people, even in this time, are saving more for retirement. Lots of people are putting stimulus money into work for retirement and for long-term goals. So that's great to see as well.

RICK NEWMAN: Hey, Jon, Rick Newman here. There's been an explosion of fintech apps and services. What is left? What is the unmet market need at this point?

JON STEIN: There are so many, and I like to think that when we started, I like to look back and remember, there was no word, fintech. That didn't exist. It seems impossible to believe that 10 years ago, we didn't talk about fintech. There was no term, robo advisor. So a lot has changed. The industry has moved quite a bit. And it's flattering to have a lot of imitators. Even most of the big banks and big financial firms have launched some sort of robo advisory firm.

What's missing in my view, from a lot of these entrants into the market, is a recognition of human beings as fallible, as people, as people who make decisions without perfect information, who just want to do the easy thing, who don't want to have to think about it. And a lot of times financial products are designed for experts, for people who understand all the levers and want to optimize the taxes and whatnot.

Humans, people, you and me, we need advice to be able to take advantage of all the opportunities that are out there in the investing landscape, in the tax code, et cetera. And an advisor, like Betterment, or your financial advisor who uses Betterment, can take advantage of all the opportunities that are out there to help customers, to help real human beings make the most of their money to meet their goals. I don't think most fintech does that. I think it's local optimizations, not really holistic thinking about human beings and helping them live better lives.